egyptian and syrian commodity markets after the ... · egyptian and syrian commodity markets after...
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1
Egyptian and Syrian commodity markets after the dissolution of the Ottoman Empire:
a Bayesian VECM analysis
Laura Panza and Tomasz Woźniak
The University of Melbourne
Abstract
The disruption of the Ottoman Empire caused dramatic changes to the economic and political
structure of the Middle East. The newly established nations, incorporated into British and
French formal and informal empires, actively implemented a range of protectionist policies,
thus disrupting the region’s traditional trade flows and patterns. This paper investigates the
impact of this new economic setting on commodity market integration in Syria and Egypt,
using Bayesian inference. After testing for co-integration through the calculation of Bayes
factors and computing impulse response functions, our results point to the existence of
integrated markets.
2
The ancestors of the London bankers were still roaming the wilds with clubs in their hands,
when the Phoenician sails were plying a prosperous trade between Syria and Egypt. The
Phoenician sails have long since gone beyond the horizon but the Syro-Egyptian trade
continues. Twenty-five centuries of commercial relations bind the two countries together.
Burns, 1933:82
1.Motivation
After the end of World War I, the former unification of the Middle East under a single
imperial authority was substituted by a series of separate states with their own tariffs, custom
regulations and currencies. Thus, the core of the Ottoman Empire was fragmented into nine
countries: Egypt, Syria, Lebanon, Transjordan, Iraq, Palestine, Turkey, Saudi Arabia and
Yemen. Only the latter three exercised full sovereignty during the interwar era; Britain
retained control over Egypt, which was declared a protectorate; the other Arab nations
became administered by Britain and France, in accordance with the so called Mandate system,
established by the League of Nations.1
Previous studies indicate that the Middle East became progressively more integrated
with the international economy during the so-called first wave of globalisation (1850-1914),
thus following the same path of many other regions of the world (Issawi, 1966; Owen, 1981;
Inan, 1987; Kasaba, 1988; Pamuk, 1987, 2004; Inalcik and Quataert, 1996; Panza, 2013). At
the time, global commodity and factor markets became increasingly more integrated,
primarily thanks to the dramatic improvements in transportation technologies (Foreman-Peck,
1995, O’Rourke and Williamson, 1999).
1The League of Nations sanctioned the division of the Ottoman Empire and granted Britain the right to
administer Transjordan, Palestine and Iraq and France the right to administer Lebanon and Syria. (Cleveland,
2004).
3
This period was followed by an “anti-global” and autarkic interwar era, when
commodity and factor price convergence came to a halt (Findlay and O’Rourke, 2007;
Federico, 2012). One of the major causes for such reversal of globalisation has been
identified with the failure to dismantle the system of protectionist trade policies put in place
during the Great War.2 In fact, in its aftermath, average tariff rates continued rising globally:
from Europe to the US, 3
from Latin America to Asia.4
Furthermore, other forms of
protectionist policies, such as quantitative restrictions to trade, government sanctioned trade
monopolies, import licences, antidumping legislations and competitive devaluations remained
a widespread practice of interwar commercial policy internationally.5
Over the past decades, economic historians have made a concerted effort in examining
the dramatic changes that affected the economies worldwide in the period between the First
and Second World Wars, using different empirical approaches.6 However, with a few
2 Eichengreen (1992) provides an excellent overview of the global economy during the interwar period.
3 In the mid-1920s tariffs were unambiguously higher than they had been in 1913 in Bulgaria, Czechoslovakia,
Germany, Hungary, Italy, Romania, Spain, Switzerland and Yugoslavia (Findlay and O’Rourke, 2007). In the
US, the Fordney-McCumber Tariff Act and later the Smoot-Hawley Tariff considerably raised overall
protection (Irwin, 1998).
4 In Latin America average tariffs increased from 22.2% in 1929 to 27.3% in 1932. In Asia tariffs were on the
rise, too: between 1918 and 1929 average tariffs climbed from 4.8% to 14.7% in India and from 10.8% to 25.3%
in Burma (Clemens and Williamson, 2004).
5 During the interwar years, protectionism’s damaging impact on trade volumes was not counteracted by a
decline in the costs of international transport. While some productivity growth had been achieved in ocean
shipping during the interwar, this was diminished by rising factor prices and thus was not sufficient to overcome
the effect of widespread rampant protectionist measures (Shah Mohammed and Williamson, 2004).
6 Despite the existence of a voluminous literature on the interwar era, only very few works have explored
empirically the disruption of commodity market integration and hence the deterioration of the process of
international price transmission, which brought to a halt the globalizing trends of the previous four decades. An
4
exceptions, the countries of Middle East have yet to be fully incorporated into this research
agenda, with most of the existing economic history literature being predominantly of
qualitative nature (Herschlag, 1964 and 1975; Mead, 1967; Issawi, 1982; Tignor, 1989;
Quataert, 1994; Owen and Pamuk, 1998).7
Focusing on the experiences of Egypt and Syria, this paper draws attention on some
fundamental questions to bring new insights on Middle Eastern economies during the
interwar era: Did the region share the same “anti-global” developments of most countries?
Did the Egyptian and Syrian commodity markets, once united by the same custom union
under the aegis of the Ottoman Empire, disintegrate? Or did the incorporation of the two
nations into the British and French colonial systems lead to the establishment of improved
linkages within the region?
We address these issues through an empirical investigation of the process of market
integration between Syrian and Egyptian commodities using Bayesian inference. We
contribute to the scholarly debate on two fronts: first, we bring new insights to the growing
market integration literature focusing not only on a period that has strikingly received very
little attention, the interwar, 8
but also on a relatively unexplored region, the Middle East.9
Secondly, the analytical tools chosen represent an important methodological contribution in
field, due to their specific suitability in dealing with small datasets within a dynamic
multivariate framework. In fact, we explore the evolution of Middle Eastern market price
important exception is provided by Findlay and O’Rourke (2004:461-5), who measure commodity price
differentials between different cities of the world to attest the disintegration of global markets.
7 Notable exceptions are Hansen, 1991; Pamuk and Williamson, 2000; Yousef, 2002; Karakoc, 2012.
8 Important contributions are Hynes, Jacks and O’Rourke (2012), Trenkler and Wolf (2005), Federico and
Persson (2007).
9 We are not aware of the existence of any study on market integration in the Middle East in the interwar era.
5
relationships across time (1923-1939) and space (Aleppo, Beirut, Cairo and Alexandria),
applying state of the art developments in Bayesian vector error correction models.10
2. Trade patterns in the Ottoman Empire before WWI
Before the dissolution of the Ottoman Empire all its regions belonged to the same custom
union.11
From mid-19th
century most Ottoman provinces experienced a spectacular increase
in trade flows, spurred on by declining transport costs (Harlaftis and Kardasis 2000).12
The
larger size of imports and exports is emblematic of the Empire’s participation to the first
wave of globalisation, which determined a partial shift in the patterns of exchange from
within the region itself to trade with Europe. Such changes were particularly dramatic in
Egypt, whose openness and integration with the world economy were the highest in the
whole Ottoman realm.13
While trade with Europe grew, intra-Ottoman commerce continued to represent a larger
portion of the economies of most Middle Eastern states during the 19th
/early 20th
Century,
despite the absence of a well-developed infrastructure and transport system (Inalcik and
10
One of the important features of the Bayesian approach is that it ensures that the results hold even if the
sample is not representative of the whole population and/or the unit root properties of the data are not
guaranteed.
11 Import and export duties were fixed at 8% and 1% per respectively by a series of trade treaties signed in
1861/2. Some minor alterations occurred between 1870 and 1914 Tunisia became a French protectorate in 1884
and Libya and Italian colony in 1912.
12 Trade rose from 9 million Turkish Lira in 1830 to 45.9 million in 1910-13 (Owen and Pamuk 1998:4).
13 See Panza 2013 for a study of market integration comparing the Egyptian and the western Anatolian cotton
markets.
6
Quataert, 1996:770).14
For example, in 1862 the value of Ottoman imports in the province of
Damascus was five times greater than that of non-Ottoman goods (Inalcik and Quataert,
1996:836).15
Moreover, 80 per cent of all Damascus exports were directed to the Empire in
1892 (Frank 2004:418). In 1910 about 45 per cent of Syria’s16
exports and 19 per cent of its
imports went to and came from Egypt and other parts of the Empire (Musrey, 1969: 8; Frank
2004: 418).17
Trade between the various administrative divisions of Syria was substantial,
too.18
Egyptian regional trade figures are less impressive, but still not negligible. Imports from
other parts of the Ottoman Empire covered about one fifth and around 11 per cent of
Egyptian average annual imports in 1884 and in 1909-1913 respectively. On the other hand,
trade with Europe was much more conspicuous, with about two-thirds of Egypt’s exports
going to Britain and over one-third of its imports coming from there at the turn of the century
(Musrey, 1969: 200, footnote 9). Egypt’s linkages with Great Britain were strengthened after
colonization in 1882, when it de facto withdrew from the Ottoman custom union and signed a
separate trade treaty with the Empire. This imposed an 8 per cent ad valorem import tax on
14
Ottoman international exports formed around 25 per cent of Ottoman agricultural production, so that the
remaining 75 per cent stayed within the Empire (Inalcik and Quataert 1996:834).
15 See Inalcik and Quataert (1996:836-7) for a detailed account of intra-Ottoman trade flows.
16 The region generally referred to as Syria before WWI (Bilad-el-Sham) included present day Syria, Lebanon,
Jordan, Israel and Palestine.
17 These exports included items such as barley, millet, sheep and other livestock, dried apricots, legumes, wine,
etc., but also silk and cotton textiles.
18 For example cereals were sent in large amounts from Homs and Hama to Aleppo, Tripoli and Beirut; from the
Hauran to Damascus and Haifa; and from Gaza and Beersheba to Jerusalem and Jaffa. Fruits, vegetables, oil,
soap and textiles and leather were also important trade items.
7
goods grown or produced in the Empire, which in turn subjected Egyptian commodities to the
imperial tariff, which remained at 8 per cent ad valorem.19
The outbreak of the First World War, together with large numbers of casualties, forced
migrations, famine and disease, led to a dramatic disruption of trade flows, compounded by
the embargo of the Allies on the Mediterranean (Pamuk 2005: 118).20
Its aftermath brought
about the political and economic dismantlement of the Empire, marking the end of its large
free trade area and the beginning of significant economic divisions within the Middle East.
3. Middle Eastern trade during the interwar era
The dissolution of the Empire gave origin to a set of countries with separate customs and
different units of monetary systems. Palestine, Transjordan and Iraq became British mandates
and had their currencies tied to the British pound. France obtained a mandate over Syria, a
large region comprising the states of Syria, Greater Lebanon, Jabal al-Duruz, the Government
of the Alawis (Latakia) and the Sandjak of Alexandretta. The official currency became the
Syrian pound, tied to the French franc.21
Egypt, which became a British protectorate in 1914, was unilaterally declared independent by
Britain in 1922. However, the economic and political ties between the two countries
remained very strong during the whole interwar period: the British High Commissioner held
powers with a strong potential for intervention in Egyptian economic matters since London
19
Despite the imperial tariff increase to 11 per cent in 1907, Egyptian goods continued to be subject to the lower
8 per cent rate.
20 In 1916, the volume of Ottoman foreign trade decreased to one fifth of the level before the war, 90 per cent of
which was undertaken with Germany and Austria (Eldem, 1994:66, cited in Pamuk 2005:118).
21 On April 1, 1920 the French High Commissioner emitted a decree for the establishment of a new Syrian paper
currency based on the French franc. Thus, the Syrian pound, equivalent to 20 francs and divisible in 100 piasters,
became the unit of currency, replacing the Turkish gold pound (Himadeh 1936: 264).
8
reserved rights over four areas: defence, imperial communications, the Sudan and the
protection of foreign interests (Tignor, 1984, p. 4 and 44).22
Furthermore, the Egyptian pound
remained pegged to the Sterling.
During the 1920s inter-Arab trade still constituted a substantial share of the total trade of
most countries, aided by moderate tariff rates. Over one third of Syrian exports went to and
around one tenth of its imports came from Egypt, Palestine, Transjordan, Iraq, the Hejaz and
the Nejd, with Egypt and Palestine being its most important customers. Over two-fifths of
Palestine’s trade was conducted with Syria and Egypt, and most of Transjordan’s exports
went to Syria, Egypt and Palestine. Despite Egypt’s lower level of engagement in the region
(only about one-twentieth of its trade was carried on with other Arab countries), it imported a
substantial quantity of goods from Palestine, Syria and Sudan and exported to those countries
a considerable amount of commodities, other than cotton (Musrey 1969: 15).23
Trade with the mandatory/occupying powers (France and Great Britain) became increasingly
more important since the dissolution of the Empire, despite the initial absence of preferential
commercial agreements. It was facilitated by tied currencies, foreign investments and foreign
control. During the late 1920s over one third of Egypt’s exports went to and around one fifth
of its imports came from Great Britain. France was one of Syria’s leading trade partners,
accounting for about one-sixth of Syrian imports and exports.
22
A Department of Foreign Affairs was created in the Ministry of Interior to safeguard foreign interests, which
benefitted from a series of tax exemptions allowed by the so called capitulations (Tignor, 1969: 47). Moreover,
British officials continued to play a fundamental role in the upper strata of the bureaucracy.
23 Many of the export figures could be biased upwards since they include also re-exports. However, it is
important to highlight that not all the trade conducted via land route was recorded and a great deal of smuggling
took place within the region (Musrey, 1969: 207).
9
However, despite the disruption of the Empire and the establishment of closer linkages with
Great Britain and France, there was still a semblance of regional market in the Near East by
1930, which constituted an important outlet for foodstuffs and other agricultural
commodities, as well as for a small number of manufactured goods produced in the region
(Musrey 1969: 16).
It was during the 1930s that this market shrank, owing to a series of intertwined global and
domestic factors, namely the depression, tariff escalation and monetary policy developments.
The dramatic reduction in prices and output after Great Depression drove the intensification
of protectionist trade policies worldwide. Economic nationalism, which had not previously
been a significant factor in inter-Arab trade relations, began to assert itself, mirroring a global
trend. The division of the world in currency blocs (dollar, sterling, franc, etc.) had
repercussions on Middle East, weakening trade linkages among countries belonging to
different blocs. The region was shaken by the same “de-globalisation” forces common the
rest of the world, characterised by shrinking capital flows and declining commerce, both
regionally and internationally (see Figure 1).
10
Figure 1: Middle Eastern total imports and exports in thousands US dollars, 1924-38.
Notes: Includes trade of Syria, Egypt, Turkey, Iraq and Palestine.
Sources: Iraq: League of Nations (1924-41). Egypt: Annual bulletin of foreign trade (1924-
41). Jewish Agency for Palestine (1945). Turkey: İstatistik Göstergeler (1991). Syria: Saade
(1942); Himadeh (19 6); ouchy and Sluglett (2004). Palestine: Himadeh (1938); Anglo-
American Committee of Inquiry on Jewish Problems in Palestine and Europe (1946).
4. Egyptian and Syrian economic ties in the interwar
The post-war commercial conventions between Syria and Egypt were based upon the latter’s
position as non-member of the League of Nations: being non-contiguous to Syria, Egypt
could not be granted preferential tariffs normally allowed for bordering countries (Burns,
1933: 82). However, a provisional most-favoured-nation agreement was formally established
(Accord of November 1, 1928, Burns, 1933:83), but it did not involve the granting of
preferences.
In Syria the import duty applied to most goods remained the old Ottoman rate of 11 per cent
ad valorem until 1923. Duties were raised progressively, ranging between 15 per cent
0
100,000
200,000
300,000
400,000
500,000
600,000
1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
Imports Exports
11
(“normal” duty) and 30 per cent (maximum duty) in 1924 and between 25 per cent (“normal”
duty) and 50 per cent (maximum duty) in 1926, mainly for the purpose of raising revenues.24
Until 1930, Egypt applied a uniform 8 per cent ad valorem tariff on most imports. Once tariff
autonomy was gained, a set of protectionist measures were taken to encourage industry (see
Table 1). Tariffs on raw materials were lowered and on manufactured goods risen (Hansen
and Nashashibi, 1975:4).25
A new general duty of 15 per cent was put in place together with
specific duties applicable to a series of goods, reaching 25 per cent: duties rose particularly
on fruit and vegetables, which represented most of Syrian exports to Egypt, and continued to
grow over time.26
With the devaluation of the Egyptian pound in 1931 duties on many
agricultural and industrial goods kept on rising and did so throughout the 1930s.27
For
example in 1931 the duties on bananas rose to 45 per cent and on oranges to 110 per cent
(Burns, 1933: 85). Consequently Syrian exports to Egypt shrank remarkably: between 1930
and 1933 there was a decline of 85 per cent.
24
Normal duties were applied to countries member of the League of Nations, while maximum duties to non-
members.
25 In addition to the tariff reform, the government supported manufacturing through subsidies, cheap loans and
other industrial policy measures.
26 Duties were raised also on household soap, artificial silk and other articles (Mursey, 1969:21).
27 In addition to imposing high tariffs, the government of Egypt also extended funds to encourage the
establishment of new industries and the modernization of old ones, and it purchased carpets, footwear, clothing
and other articles from Egyptian producers only (Musrey, 1969:17). While such policies had a positive impact
on industrialization, they also had adverse effects on Egypt’s inter-Arab relations, especially with Palestine and
Syria.
12
Table 1: Average tariff rates in Egypt, 1913-1938
Period Custom duty (%)
1913-14 7
1915-21 9
1922-29 11
1931-38 26
Source: Hansen, 1991:87
In Syria, too, import duties were raised substantially on many articles during the early 1930s.
As retaliation to Egypt’s trade policy, the tariff rate on rice, which constituted the main
import from Egypt, increased.28
Duties applicable to many other articles produced in Egypt
rose, too. In 19 0, Syria’s ten main exports to Egypt were subjected to an average weighted
duty of 21.1 per cent, whereas the ten main Syrian imports from Egypt bore an average
weighted duty of 14.6 per cent (see Table 2).
Table 2: The burden of the Syrian and the Egyptian tariff, 1930.
Syrian exports to Egypt Syrian imports from Egypt
Commodities Value
SYR£
Egyptian
tariff %
Commodities Value
(SYR£)
Syrian
tariff %
Ovine animals 811,997 7 Rice 1,238,325 15
Butter 402,096 12.4 Asphalt 160,176 11
Fruit paste 369,828 23.7 Raw hides 64,131 exempt
Olive oil 166,657 18.8 Box cartons 58,465 10
Dried legumes 148,309 62 Leaf tobacco 39,666 31
Cotton cloth 124,204 16 Sole leather 27,742 15
Oranges 103,265 65.1 Cotton cloth 26,516 20
28
Moreover, the official value for rice for customs purposes was set at twice its former value.
13
Wheat 98,281 14 Cigarette paper 24,138 35
Dried apricots 92,216 12 Jute sacks 22,479 exempt
grapes 72,306 9.4 Beer 21,375 25
Average incidence 21.1 14.6
Source: Burns, 1933
The tariff war continued during the 1930s. In April 1933 Egypt imposed a surtax of 100 per
cent on Syrian imports and on August 1933 Syria subjected Egyptian imports to its maximum
duties, which were twice the normal rate. While a formal provisional most-favoured-nation
agreement was signed in 19 4, Egypt’s tariff increase at the end of the 19 0s and Syria’s
multiple devaluations did not aid a reinstatement of pre-depression trade relations. The Syrian
pound (tied to the French franc) was devaluated in 1936, and additional devaluations
followed at intervals during 1937, so that it depreciated by around 50 per cent at the end of
1937. After the first devaluation in 1936, Syria raised most of its duties by 15 per cent,
followed by an additional 20 per cent in May 1938.
While Syrian imports of Egyptian goods do not seem to have been affected extensively by
tariff escalation, its exports to Egypt dropped significantly from 1930 (see Figure 2). For
example, while during 1929 and 1930 around 17 per cent of Syria exports went to Egypt, this
figure dropped to around 5 per cent for the remainder of the 1930s. While during the 1920s
Syria had exported to Egypt a substantial amount of different agricultural commodities, as
well as various types of textiles, by 1939 Egypt imported only a limited range of Syrian
goods (Musrey 1969:22). The reason for such different repercussions of increased tariffs on
bilateral trade relations is related to the timing of the onset of protectionism. The drop of
Syrian exports to Egypt after the depression was so dramatic since until 1930 Egypt kept a
comparatively low tariff rate (which did not hamper foreign trade). On the other hand, Syria
14
embraced a protectionist stance much earlier, with its tariff rising progressively from 1923: in
fact, it was in the 1920s that Egypt’s exports declined the most (Figure 2).
Furthermore, the magnitude of the market loss was larger for Syria owing to its stronger
dependence on Egypt, both in terms of export quantity and variety. In fact, Egypt’s main
export to Syria, rice, continued to be substantial despite the tariff increase and the
devaluations of the Syria pound. On the other hand, the export of other goods such as
cottonseed oil and grey cotton fabric dropped substantially.
Figure 2: Trade between Syria and Egypt, 1921-1941 in thousands of Syrian pounds.
Sources: 1921-4: Haut Commissariat de la R publi ue Fran aise en Syrie et au Liban (1927);
1925- 33: Himadeh (1936); 1934: Bulletin (1934); 1935-1941: Saade (1942).
The deterioration of the Egypt-Syria trade relation was paralleled by an analogous worsening
of the whole Middle Eastern regional commerce. Similar policies of protectionism coupled
with competitive devaluations were adopted by most countries of the region. By 1939
Egypt’s inter-Arab trade, excluding Sudan, constituted less than 3 per cent of its total trade
(Musrey 1969:25). The only semblance of a regional market in the Near East during the
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
imports from Egypt exports to Egypt
15
1930s was limited to Palestine, Transjordan and Syria. Within such a framework, almost no
attempt was made to develop regional economic ties.29
5. Commodity market integration in the Middle East
Before investigating the impact of such deterioration of regional commercial ties on the
integration of Middle Eastern commodity markets, it is sensible to question whether these
markets had ever been integrated, regionally and/or with the global economy. Despite not
abundant, the empirical literature on the topic attests to the establishment of closer linkages
between Ottoman and international markets during the second half of the nineteenth century
(Pamuk, 2004; Panza 2013). 30
The evidence on regional integration is less solid, owing to the
scarcity of data. However, estimates of the cost of living for several Ottoman cities show a
degree of co-movement. CPI indexes in Edirne, Bursa, Damascus and Cairo indicate clearly
that the prices in these cities moved together with those in Istanbul for the period for which
data are available, i.e. from 1460 to mid-19th century (Pamuk 2000).
The end of the Empire and the heavy mark left by WWI, both in terms of physical destruction
and of economic and monetary dislocation, left the Middle East facing severe inflationary
pressures, like most belligerent countries. Currency pegs to the franc and the sterling implied
a renewed commitment to the gold standard at the pre-war gold parity, despite the
considerable change in financial strength and competitiveness, thus putting an extra strain to
recovering economies. The whole region was affected by the intrinsic fragility of the
international system made of reparations, war debts and lack of cooperation which crumbled
29
The only exception was the maintenance of free trade relations between Egypt and Sudan and those between
Syria and Palestine. The latter were terminated in 1939.
30 However, the degree of market integration varied among Ottoman regions, with the coastal areas having
tighter linkages with the world market (Panza, 2013)
16
with the Great Depression. The downward spiral of competitive devaluations, tight monetary
policy and protectionism, which triggered an unprecedented fall in global trade, hit negatively
Middle Eastern commodity markets, too.
Widening price wedges between trading economies arising from declining export prices and
increasing import prices, due to the world-wide spread of protectionist practices, lowered
trade flows and brought about market disintegration globally (Hynes, Jacks and O’Rourke
2012:120). How did Middle Eastern commodity markets react to such global changes? Did
the region experience the same disruption in price transmission as the rest of the international
economy documented by Hynes, Jacks and O’Rourke (2012)? And, if so, did this process of
disintegration start with the collapse of the Empire or with the Great Depression?
The only existing work that looks at the issue of market integration in the Middle East, to the
best of our knowledge, is a case study on Egypt in the 1920s-30s by Yousef (2000). The
author tests for the presence of price transmission for a series of commodities in various
Egyptian towns and brings some evidence of integration. His findings seem to suggest that
the Egyptian markets were not negatively impacted by the Depression.
Our paper extends on this theme providing some new insights on regional price convergence
in the Middle East. Before making an empirical assessment we are able to identify two
opposing forces that influenced arbitrage opportunities between Middle Eastern markets, and
thus price transmission. One the one hand, a series of factors may have acted against market
integration: rising protectionism, particularly tariff escalation in the 1930s; the practice of
competitive devaluations first of the Egyptian pound (1931) and successively of the Syrian
pound (1936); Egypt/Britain and Syria/France preferential trade agreements; the rise of
nationalism. All these forces caused an increase of the price differentials between trading
markets, potentially leading to their disintegration. At the same time, other factors may have
favoured integration: the relative low rates of protection in Egypt until early 1930s; the
17
expansion and improvements of physical infrastructure in both countries, which had a
positive impact on transport costs; and the development of better commercial institutions
which lowered transaction costs. Since we have already discussed the evolution of the use of
protectionist practices between Syria and Egypt, the following sections will have a closer
look at transport and transaction costs.
Transport
Both Syria and Egypt underwent a process of infrastructure development during the interwar,
particularly the transport sector. In Egypt the transport system was improved by the building
of roads and airports and the modernisation of railways (Issawi 1963, p. 32), which lowered
shipping costs domestically. The cost of rail transport was constantly reduced, in response to
an increase in motor competition.31
Railway tariffs were adjusted downward to encourage
exports and to help local agriculture and industry by carrying bulky products at reduced rates
(Issawi 1963:202). As a result, the capital stock in transportation rose, as mirrored by the
increase in railway length (Table 3). International transport costs were reduced, too; in fact, a
series of subsidies were granted to Egyptian shipping companies, which expanded their
merchant fleet.32
31
While water transportation along the Nile represented another source of competition, most commodities were
transported by train due to the quicker delivery time and to the fact that river transport was not much available
in Lower Egypt (Fahmy 1931:100).
32 Another major improvement in transportation was connected with the development of the Suez Canal:
between 1876 and 1934 six improvement programs were implemented increasing trade efficiency and thus
expanding merchandise flows. However, this did not have any impact on Syro-Egyptian trade.
18
Table 3: Railways track length in Egypt, 1914-39.
Period Track length (miles)
1914 1,900
1924 2,016
1929 2,035
1934 2,153
1938 2,238
1939 2,268
Source: Authors’ calculations based on Hansen 1991:43 and Grunwald and Ronall 1960:55
In Syria the French administration embarked on an extensive program of transport
development. French policy became particularly active from 1933/4 with the appointment of
a new high commissioner, Count Damien de Martel, who established a six-year plan to
promote the development of roads, railways, ports and irrigation (Gates 1998, p. 31). Road
building was expanded through a systematic program (Table 4): three longitudinal trunk lines
were constructed, each traversing one of the three plains running parallel to the coast (from
Râs al-Nâkûra via Tyre, Didon, Beirut, Tripoli, Latakia and Antioch, to Aleppo; from Tyre
via Zahlah, Ba’albak, Homs and Hama, to Aleppo; from Dar’â via Damascus to Homs). A
series of transverse lines joining the plains and valley by connecting them across the
mountain ranges was also developed, for example from Beirut to Damascus, from Tripoli to
Homs, from Latakia to Aleppo (Himadeh 1936:179).
19
Table 4: Roads in the Syrian states, 1933
Region Road length (km)
State of Syria Primary roads 865
Primary trails 1415
Secondary roads 488
Secondary trails 2538
Sandjak of Alexandretta Primary roads 200
Secondary roads 217
Lebanese Republic Primary roads 592
Secondary roads 2280
Government of Latakia Primary roads 190
Secondary roads 991
Source: Himadeh 1936:180
French capital financed most railroad expansion and maintenance during the mandate: rail
tracks grew from 525 to 950 miles between 1914 and 1938 (Grunwald and Ronall 1960:55).
Railway rates experienced a sharp decline since 1928, due to increased competition from
motor vehicles. Himadeh (1936:184-5) reports that from 1928 railway rates were modified
from week to week to meet this competition and that freight rate dropped from 5.62-8.10
Syrian piasters per ton in the late 1920s to 1-2 piasters per ton in the mid-1930s.
Shipping facilities were also improved: in particular, the port of Beirut expanded, doubling in
size, and endowed with larger warehouses.33
Postal and telegraphic services experienced
considerable progress, strengthening regional communications. Moreover, the first telephone
33
However, all loading, unloading and storage transaction were monopolised by a French company, thus
resulting in high port charges (Himadeh 1936, p. 234).
20
lines were installed both within the Syrian territory and in connection with Palestine,
Transjordan and Egypt.
Commercial institutions
The interwar period saw the consolidation and expansion of a series of institutions focusing
on trade, particularly commercial banks, in both countries. In Egypt, some of the gaps of the
credit system were filled by the creation of specialised, government-sponsored banks which,
among other things, facilitated trade transactions (Issawi 1963, p.33). The foundation of the
Egyptian Chamber of Commerce in Cairo was followed by the formation of other
commercial banks in the 1920s easing both domestic and international trade. A particularly
important role was played Bank Misr, the first purely Egyptian owned and managed
institution, mirroring the rise of the Egyptian merchant and business community. The
increase in the capital base of the bank facilitated the availability of credit for import-export
activities (Tignor 1984). Its special linkages with Syria consolidated trade relations between
the two countries.
Moreover, new multinational bank branches dealing with domestic and international trade
were opened: British and French banks, already widespread in the Egyptian territory before
WWI, were joined by Italian and Belgian ones.
In Syria both foreign and domestic banks expanded the scope of their operation in the 1920s
and 1930s, with commercial banking representing a major component of their activities.
French banks opened new branches in different Syrian cities, all dealing with foreign trade:
the Banque Française de Syrie, established in 1919; the Crédit Foncier d’Algérie et de la
Tunisie opened its first branches in Beirut (1921) Aleppo (1930) Damascus and Tripoli
(1931); the Compagnie Algérienne expanded to Beirut (1931) and Tripoli (1932); the Banco
21
di Roma confined to purely commercial banking established three branches in Beirut, Aleppo
and Damascus after WWI (Himadeh 1936 287-8).
Another chief banking establishment contributed to improve commercial operations,
particularly between Syria and Egypt: the Banque Misr-Syrie-Liban. It was founded by the
Bank Misr in collaboration with a group of Syrian financiers with the aim of improving trade
and economic relations between the two countries (Himadeh 1936, p.290).
Were such improvements in transport and commercial institutions enough to counter the
impact of rising protectionism and of the other forces disrupting trade? After describing the
dataset and defining our methodology, we present our empirical results.
6. Data.
One of our contribution stems for the creation of a new dataset for Syrian prices, using a
completely unexplored primary source: the Bulletin
. Egypt’s prices are taken from the Annuaire Statistique. We collected
quarterly data on eight commodities commonly used by Egyptian and Syrian consumers in
Alexandria, Cairo, Beirut and Aleppo: wheat, olive oil, barley, flour, sugar, rice, coffee, soap.
Our final data are expressed in GB£ per kg.
All Egyptian goods were expressed in Egyptian piasters (100 piasters equal to 1E£) and were
converted in GB£ using the following exchange rate: 1E£= 1.025 GB£ (El Imam 1962).
Prices were reported in the following units: wheat (Zawati) in ardeb of 150kg; barley (Baladi
Beheri) in ardeb of 120 kg; rice (de Damiette, Mahsous) in kadah of 1.835 kg; coffee (Santos,
type 1) in rotl of 0,449 kg; sugar (granulé), olive oil (De Candie) and flour in oke of 1.248
kg; soap (Baladi, Kafr el Zayat) in rotl of 0,449 kg.
22
Syrian goods were originally either in Turkish or Syrian piasters and converted in GB£ using
the quarterly exchange rates published in the various issues of the Bulletin Économique
(1923-1939). The following units were used for prices in Beirut: ocque of 1.280 kg for
coffee; kantar of 256 kg for wheat and barley; rotol of 2.564 kg for soap, flour and sugar; kg
for rice. Prices in Aleppo were in kg or quintals.
7. Methodology
Using the framework offered by co-integration analysis, our study of market integration
explores the evolution of the relationship between commodity prices in Syria and Egypt both
in the long and short-run. Market integration is thus considered as the pass-through of price
changes between spatially separated markets, as theoretically postulated by the Law of One
Price. This approach is widely used in the literature as attested by the large body of
theoretical and empirical studies, including those within the field of economic history.34
In
the past few years the debate on how market integration should actually be measured has
been quite lively, with scholars resorting to more sophisticated econometric tools, mainly
based on co-integration or price dispersion (Uebele 2011, Jacks 2005, Federico and Persson
2007, Sharp 2008).
Let us start with a description of the data: the collected prices for different commodities and
geographic locations form time series, denoted by , where subscript stands for different
commodities and subscript denotes a time period, and defines the length of the
series. These data exhibit several stylised properties that are commonly met in applied studies
of financial time series and which are properly modelled in the empirical model.
First of all, the individual time series are persistent (the current value of a variable
depends in a dynamic fashion on its past realizations) and unit-root non-stationary or I(1) (see
34
For an excellent review of the existing economic history literature on market integration see Federico 2012
23
Uhlig, 1994).35
Two I(1) variables are considered co-integrated if their linear combination
contains a common stochastic trend, thus representing a unit-root stationary process. While
co-integration is interpreted as a long-term equilibrium relationship between variables, this
must not hold exactly at each particular period. The deviations from the long-run equilibrium
constitute the short-term dynamics of the price relationship. All these features of the data will
be treated empirically by computing Vector Error Correction Models (hereinafter VECM)
and Impulse Response Functions (hereinafter IRF) for each commodity.36
The historical dataset presented in Section 6 is cumbersome for the empirical analysis,
because it consists of time series that are scarce in the numbers of observations. Commodity
prices are collected for the period starting from the first quarter of 1923 and finishing in the
first quarter of 1939, so that . The small amount of observations complicates classical
statistical inference to the extent that it casts well-justified doubts on whether the asymptotic
properties of the estimators and test statistics hold.37
We therefore use a different approach,
namely Bayesian inference.
The Bayesian approach makes a clear distinction between the statistical treatment of
observed and unobserved values. Observables, that is data , are treated as given and non-
random, whereas all unknown values, such as: parameters of the econometric model,
collectively denoted by , forecasted future values of the economic variables, and missing
observations, are characterised by probability distributions. The final product of Bayesian
estimation is the posterior distribution of the parameters given data and the model, ,
35
The econometric treatment of unit-root non-stationary variables leads to a nonstandard inference within the
classical approach, but does not change the inference rules in the Bayesian approach (Sims & Uhlig, 1991).
36 VECMs were first introduced by Engle and Granger (1987).
37 One possible solution that addresses this problem is to perform an analysis of the small-sample empirical
distribution of the estimator and test statistics using bootstrap methods.
24
where denotes the assumptions behind the econometric model. The posterior distribution
summarises all the information about the parameters of the model contained in the sample
data. It is a finite-sample distribution which represents the basis for a coherent Bayesian
statistical inference (see e.g. DeGroot, 1969). Therefore, inference based on the posterior
distribution is valid in small-samples given that the model, , is specified correctly. In the
subsequent parts of this section the VEC Model and its Bayesian treatments are presented.
7.1. Structural Vector Error Correction Model
A Structural VEC Model is defined by:
(1)
for , where is a -dimensional vector of the first differences
of vector , is a matrix of contemporaneous effects, is a -dimensional
vector of constant terms, and are matrices of so called loading coefficients and
co-integrating vectors respectively, for are matrices of the short-run
dynamics, and is a -dimensional vector of error terms that is assumed to follow
a -variate normal distribution with mean set to a vector of zeros, and an identity covariance
matrix.
Several features of this model are especially useful in the analysis of the integration of
commodities markets. First of all, VECMs explicitly model the long-run equilibrium
relationship between the variables which is represented by a vector product . This,
despite containing I (1) variables, is stationary. Matrix is assumed to be semi-orthonormal,
that is , which assures the global identification of the system .38
38
See Strachan and Inder, 2004 for the solutions to a global and local identification of the system that is
implemented also in this paper.
25
The essential information to assess the presence of integration (or the absence thereof) is the
co-integration rank, , which indicates the number of co-integrating relationships. In the
context of our analysis, if the number of the co-integrating relations is greater than one, but
less than the total number of the markets analysed in a particular model, then there exists a
long-run equilibrium between the markets in particular cities. That case represents the
hypothesis of market integration. If the number of the co-integrating relations is equal to zero
( , then the commodities prices are unit-root non-stationary, but not co-integrated,
which implies that the local markets are not integrated in the long-run. If the number of co-
integrating relations is equal to the number of variables in the system then the
variables are unit-root stationary, and thus co-integration analysis is not a proper tool to
investigate the integration of markets.
7.2. Impulse Response Functions Analysis
IRF analysis represents another useful tool to investigate the timing patterns of commodity
market integration (see e.g. Lütkepohl, 2005, for the textbook exposition). The study of IRFs
allows us to identify the time patterns of the responses of all variables in the system to a
shock of unit value in one of them.
We analyse the responses to orthogonal shocks, , through the just-
identifying restrictions imposed on the lower-diagonal elements of matrix (see Rubio-
Ramirez, Waggoner and Zha, 2010, for the newest developments in the identification of
structural models). The exclusion restrictions are based on the analysis of the geographical
structure, market power and supply chains for each commodity. Since a lower-triangular
matrix of contemporaneous effects is used, the role of a particular location in affecting the
remaining locations instantaneously is determined by the ordering of the variables in
26
vector . These considerations are presented for each particular commodity market in
Section 8.
The use of Bayesian estimation allows us to obtain the posterior distribution of each
IRFs. In order to formally assess the statistical significance of the effects of a shock on one of
the variables on the others, we report the IRFs’ 25th and 75th percentiles.
7.3 Co-integration using Bayesian VECMs
7.3. Co-integration using Bayesian VECMs
The employment of the Bayesian approach was already motivated for its usefulness for
small-sample analysis. In this section some other Bayesian techniques that make co-
integration analysis informative are described.
The posterior distribution, , is proportional up to a normalising constant to
the product of the likelihood function, , and a prior distribution of the parameters,
. The form of the likelihood function is determined by equation (1) and the normality
assumption for the error term. The prior distribution reflects the knowledge of the researcher
about the parameters prior to seeing the data. Many different premises can determine it;
however, in this study its choice is motivated by the identification of the co-integrating space
as well as by the small time dimension of the data.
Following Johansen (1988) we identify as the co-integrating space, spanned by
the plane determined by the vectors of matrix beta, and not by the elements of this matrix
themselves. Thus, our prior distribution is specified for the co-integrating space (and not for
the parameters of matrix beta) by the informative prior distribution of Strachan and Inder
(2004). Moreover, the prior distributions for the remaining parameters of the model are
chosen to belong to the class of adaptive shrinkage prior distributions (see Korobilis, 2013,
27
and Giannone, Lenza & Primiceri, 2012). These priors are multivariate normal distributions
with the mean set to a vector of zeros of appropriate dimension. The covariance matrix is a
diagonal matrix, and its diagonal elements are further estimated. The shrinkage occurs if the
values of variances a priori of the parameters are less than the values of their variances
a posteriori. Such mechanism proved to be very useful in the estimation of empirical models
with a large number of parameters given the sample size (see Giannone, Lenza and Primiceri,
2012). This case is very relevant for the analysis of our data because the potential number of
the parameters of the estimated VECM will be large compared to the sample size .
Thus, the employment of Bayesian adaptive shrinkage technique makes the estimation of
such a large model possible and it also improves the its in-sample fit. The estimation of the
diagonal elements of the covariance matrix of the normal prior distribution reduces the
arbitrariness in the choice of prior specification and further improves the model fit. The
reader is referred to the Statistical Appendix for more details on the prior specification.
The posterior computations are performed following the analysis of Koop,
Leon-Gonzalez and Strachan (2009), with the difference that the panel data dimension is
neglected here and simple VEC Models are estimated for each commodity. Also some
modifications to the prior distributions are introduced as presented in Statistical Appendix.
In order to test whether the variables are unit-root non-stationary, models with
co-integration rank set to the number of variables in the system, (representing the
hypothesis of stationarity) are estimated and compared to those that assume non-stationarity.
The model representing the hypothesis of unit-root stationarity of the variables is equivalent
to the model in equation (1) with restrictions imposed on matrices alpha and beta. Beta is
here a identity matrix, and alpha is a matrix such that the largest eigenvalue of
matrix is less than one.
28
The VECM is fully specified by selecting the lag order , and the co-integrating rank
. In order to choose these two values we compute the so called Bayes factors (Kass and
Raftery 1995) of the models including all the possible combinations of and
, as well as a model with no lags, , and zero co-integrating relationships,
. The Bayes factors are equal to the ratio of the posterior probabilities of the former
models to the posterior probability of the latter ( ) provided that all models have
the same probability a priori. Selecting the model that has the highest Bayes factor value
determines the values of and . The Bayes factors are estimated by computing the Savage-
Dickey density ratio (see Verdinelli & Wasserman, 1995, and Koop et al., 2009). The reader
is referred to Statistical Appendix for the analytical formula for the computations.
8. Empirical results
Appendix A presents the results of the empirical analysis. It reports for each commodity
market: a data plot; a table including the Bayes factors for the selection of the lag order, ,
and the co-integrating rank, , for the VEC Models; the IRF. The restrictions imposed on the
lower diagonal elements of matrix for the calculation of the IRFs have been set according
to bilateral trade patterns and supply chains for each commodity. Trade between Syria and
Egypt took place mainly via steam and sail ships through the ports of Beirut and Alexandria.
For the goods exported from Syria to Egypt (wheat, barley, olive oil, soap, flour), Syrian
cities are considered as the dominant markets, impacting Egyptian prices. The opposite is
assumed for Egyptian exports to Syria (rice and sugar). Within Syria, Aleppo was the main
area of production of barley, wheat and olive oil and therefore assumed to impact directly
Beirut and indirectly Alexandria and Cairo. Since we do not have price data for soap and
flour in Aleppo, Beirut is held as the dominant city in those markets. Within Egypt,
Alexandria is considered the leading location, being the country’s main international port.
These relations among cities establish the magnitude of the contemporaneous impact of
29
particular markets on prices in other locations. Each commodity market is analysed one by
one in the subsequent parts of this section.
8.1. Barley and wheat
The datasets for barley and wheat include four locations: Aleppo, Alexandria, Beirut and
Cairo. Apart from Cairo and Alexandria, no evident co-movement pattern can be easily
identified from the data plots. Strong support for unit-root non-stationarity of the variables is
found, as the models with co-integrating rank equal to 4 have negligible posterior probability
(the smallest value of the Bayes factor for each lag order). Moreover, the co-integrating rank
selection procedure clearly supports the hypothesis of the integration of the market as two
models: with and with (and lag order, ) gather around 40 and 60 percent of
the posterior probability mass respectively.
As described in the previous section, barley and wheat were grown mainly in Aleppo
and exported from Beirut to Egypt. The supply linkages among locations guided our choice
on the exclusion restrictions on matrix . Such restrictions assume that: 1) the prices in
Aleppo were likely to affect other markets, whereas other cities did not impact the prices in
Aleppo within one quarter; 2) the prices in Beirut had contemporaneous effects on the prices
in Alexandria and Cairo, but did not affect the prices in Aleppo within one quarter; 3) the
prices in Alexandria affected contemporaneously the prices in Cairo, but not conversely.
This analysis is necessary in order to determine the order of variables in vector
and in effect establish contemporaneous relations between the markets. The order of the
variables is: Cairo, Alexandria, Beirut and Aleppo, and therefore the left-hand side of
equation (1) can now be presented as:
30
[
] [
].
Figures 2 and 15 present the IRF for the barley and wheat markets, respectively. They
show the impact of each cities on the locations marked on the left-hand side from the graphs.
For instance, the second graph in the third row in Figure 2 presents the responses of the
barley prices in Aleppo to the positive price shock of value one in Alexandria.
The following time patterns in the integration of the barley market are found in the IRF
analysis: prices in Beirut were not affected at any time following a shock in other cities, (as
illustrated in the fourth row of graphs in Figure 2), but only by the price shocks that occurred
in Beirut. Barley prices in Aleppo were affected positively by the price shocks occurring in
Aleppo, and the effect was long-lasting, whereas these prices were affected by positive price
shocks from Beirut, but this effect diminished within a year (four quarters). Similarly, the
prices in Alexandria were permanently affected by own price shocks, and temporarily
affected by price shocks from Beirut. Finally, as can be seen in the first row of graphs in
Figure 2, barley prices in Cairo were permanently affected by own shocks and price shocks
from Alexandria, as well as from Beirut. Price shocks in Aleppo had a direct impact on prices
in both Egyptian cities.
In the wheat market the IRF indicates the existence of the impact of prices in Aleppo on
Beirut (lasting around 5 lags), while Beirut affecting both Aleppo (in the short run) and
Cairo. The graph also indicates that Cairo and Alexandria prices impacted each other.
To summarise, the co-integration analysis revealed the existence of integration in the
barley and wheat markets in the interwar period for the considered locations. The IRF
31
analysis confirmed this finding and emphasised the essential role of both Aleppo and Beirut
in shaping barley prices in the whole region.
8.2. Flour, olive oil, rice, sugar and coffee
The prices of these goods are based on three locations, Beirut (or Aleppo for olive oil),
Alexandria and Cairo, with Beirut set as dominant market for flour, Aleppo for olive oil and
Alexandria for rice, sugar and coffee. Like in the case of barley and wheat, we can observe a
certain degree of co-movement between the Egyptian cities. The computed Bayes factors
indicate the existence of one or two co-integrating relationship (with 5 lags) in the following
markets: flour, olive oil and rice.39
The IRF analysis shows the following: Aleppo has an
impact on Cairo’s olive oil prices; in the rice market, Alexandria and Cairo affect each other
and Beirut impacts Cairo’s prices. In the case of flour, the IRF point to the absence of a
dominant market.
In the sugar and coffee markets one co-integration relationship has been identified. In the
former Cairo and Alexandria affect each other’s prices, while in the latter Alexandria has a
dominant impact on Cairo in the short run (up to 5 lags).
8.3 Soap
The analysis of the soap market is based on Beirut and Cairo markets. While the computation
of the Bayes factors suggests the existence on one co-integrating relationship, no dominant
market was found.
9. Conclusion
39
In the case of flour r=1 and r=2 both gather around 50 % of the posterior probability mass; for olive oil: r=1
(75%) and r=2 (25%); for rice: r=1 (70%) and r=2 (30%).
32
This paper has explored the issue of integration between various the Syrian and Egyptian
commodity markets after the disruption of the Ottoman Empire. Using multivariate time
series analysis based on structural VECMs, we computed Bayesian factors to select the
appropriate model for each commodity. This methodology allowed us to investigate the
dynamics of the relationship among prices in Cairo, Alexandria, Aleppo and Beirut and their
evolution across time. The analysis was matched with the computation of impulse response
functions for each market, in order to capture the impact of orthogonal shocks in one location
onto the others.
After the incorporation of Syria and Egypt into the French and British spheres of influence,
trade linkages between the two countries deteriorated considerably, particularly after the
Great Depression, when Egypt gained tariff autonomy. This generated an escalation of
protectionist policies, which, coupled with the use of competitive devaluations, further
damaged the economic relationship between the two countries. Nevertheless, our co-
integration results point to existence cross border price transmission for most commodities,
namely barley, wheat, olive oil and rice. Furthermore, one co-integration relationship has
been found in the sugar and coffee markets, linking together Cairo and Alexandria. On the
other hand, while the Bayes factors point to the existence of integrated soap and flour markets,
the IRF analysis could not identify the presence of long run linkages among various Syrian
and Egyptian cities.
33
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40
Appendix
A1. Barley
Figure 1: Barley - data plot
Table: Barley – selection of the lag order, , and the co-integration rank, .
p=1 p=2 p=3 p=4 p=5
r=1 8.096 16.762 23.008 28.083 34.327
r=2 9.849 17.890 24.415 28.731 34.725
r=3 8.808 15.654 21.591 24.979 28.283
r=4 5.478 11.370 16.200 17.250 20.589
Selected model: p= 5, r= 2
41
Figure 2: Barley - Impulse Response Function
42
A.2. Coffee
Figure 3: Coffee - data plot
Table: Coffee – selection of the lag order, , and the co-integration rank, .
p=1 p=2 p=3 p=4 p=5
r=1 -0.435 4.495 8.215 11.541 15.231
r=2 -0.202 4.000 7.187 11.347 13.519
r=3 -1.027 1.210 3.022 6.426 8.216
Selected model: p= 5, r= 1
43
Figure 4: Coffee - Impulse Response Functions
44
A.3. Flour
Figure 5: Flour - data plot
Table: Flour – selection of the lag order, , and the co-integration rank, .
p=1 p=2 p=3 p=4 p=5
r=1 7.489 11.612 13.868 18.562 21.010
r=2 8.315 12.047 14.912 18.792 21.024
r=3 10.381 12.808 14.469 17.300 17.816
Selected model: p= 5, r= 2
45
Figure 6: Flour - Impulse Response Functions
46
A.4. Olive oil
Figure 7: Olive oil - data plot
Table: Olive oil – selection of the lag order, , and the co-integration rank, .
p=1 p=2 p=3 p=4 p=5
r=1 0.911 7.130 9.366 18.227 20.427
r=2 4.123 7.865 10.811 18.868 19.851
r=3 4.704 8.666 10.602 17.068 17.377
Selected model: p= 5, r= 1
47
Figure 8: Olive oil - Impulse Response Functions
48
A.5. Rice
Figure 9: Rice - data plot
Table: Rice – selection of the lag order, , and the co-integration rank, .
p=1 p=2 p=3 p=4 p=5
r=1 7.213 9.760 10.885 13.298 23.203
r=2 9.418 10.765 11.139 13.904 22.788
r=3 9.931 9.845 8.835 11.271 19.868
Selected model: p= 5, r= 1
49
Figure 10: Rice - Impulse Response Functions
50
A.6. Soap
Figure 11: Soap - data plot
Table : Soap – selection of the lag order, , and the co-integration rank, .
p=1 p=2 p=3 p=4 p=5
r=1 -0.460 5.269 5.852 7.133 9.540
r=2 -0.607 4.212 5.973 6.534 8.107
Selected model: p= 5, r= 1
51
Figure 12: Soap - Impulse Response Functions
52
A.7. Sugar
Figure 13: Sugar - data plot
Table : Sugar – selection of the lag order, , and the co-integration rank, .
p=1 p=2 p=3 p=4 p=5
r=1 15.896 16.423 25.191 30.326 35.481
r=2 16.044 17.686 24.129 28.257 30.319
r=3 21.925 19.295 25.098 34.106 33.331
Selected model: p= 5, r= 1
53
Figure 14: Sugar - Impulse Response Functions
54
A.8. Wheat
Figure 15: Wheat - data plot
Table : Wheat – selection of the lag order, , and the co-integration rank, .
p=1 p=2 p=3 p=4 p=5
r=1 6.307 7.655 10.650 20.497 24.879
r=2 8.718 9.325 12.253 21.627 25.491
r=3 8.788 7.739 10.085 17.284 21.346
r=4 5.484 4.480 5.201 9.608 11.722
Selected model: p= 5, r= 2
55
Figure 16: Wheat - Impulse Response Functions